How Automotive Supply Companies Can Leverage Purchase Order Financing

Automotive supply companies can leverage purchase order financing in a way that allows them to obtain the materials and/or products they need to fulfill an order for a client.

There will times when an automotive supply company is low in cash and perhaps unable to fulfill an order. Most will be forced to either turn down the business or attempt to get a loan. If the latter fails, then the choice is an easy and clear one, though not very profitable. They will have to turn away the business.

One alternative is to utilize purchase order financing. This is an option that many businesses fail to consider and this is often to their detriment because not only is it one of the most effective and fastest ways to generate capital, it also doesn’t require that a company qualify for a loan.

When a business uses PO financing, they are essentially receiving an advance. This may take the form of actual cash or a line of credit. Once a business has a guaranteed purchase order in hand from a commercial or government client, they are on their way to qualifying for PO financing. It is important to note, that Factors will have varying requirements.

For example, some will only agree to purchase order funding if a business meets a minimum monthly sales threshold. Some Factors will only work with re-sellers or distributors or require a minimum percentage of gross profits for any order they agree to. Subsequently, it will be very important for businesses to research the requirements of each Factor in order to determine if they will be able to qualify for funding. A quick view of the factoring company website or a phone call will be sufficient to get all of one’s questions answered.

Automotive companies may find that PO financing is especially useful when they are looking to grow and take on bigger clients. A business may be able to comfortably support smaller jobs, but not have the capital necessary to secure larger ones. Many will first attempt to get a loan for this purpose. If they are not able to, some will give up, not realizing the other options available to them. Purchase order financing is one way great alternative. It is available even if a company has not been in business very long or has only an average-to-poor credit score.

A Factor that offers purchase order financing will pay via cash or open up a line of credit so that a company can secure the materials they need to complete a job. These materials are then delivered to the company, where they fulfill the order and bill their client. After the monies are received, the Factor is repaid, plus any applicable fees. This very simple process happens fast, is easy enough to get started once a company is deemed eligible and will enable a business to fulfill orders even when their working capital is low or limited.